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2B Corporate finance: Carrying cost

  • 1.  2B Corporate finance: Carrying cost

    Posted 09-21-2020 11:41 PM
    Hello my friends,

    I study from Gleim that Carrying cost includes:
    • Storage • Obsolete & Spoil • Depreciation or rent of facility
    • Security • Insurance • Opportunity cost
    • Interest • Tax on inventory

    Meanwhile, Gleim's answer for this question is: "The carrying cost per unit is $120 as shown below: Carrying cost = ($400 + $20) x 25% + $15 = $120"
     
    Gleims counts Purchase cost = Invoice amount + Freight as Carrying cost, then multiplied by 25% of opportunity cost and plus $15 of insurance per unit

    Can anyone give me a brief tutorial, please? Thank you in advance

     
    132. CSO: 2B4e LOS: 2B4v
    A review of the inventories of Cedar Grove Company shows the following cost data for entertainment centers.
    Invoice price $400.00 per unit
    Freight and insurance on shipment 20.00 per unit
    Insurance on inventory 15.00 per unit
    Unloading 140.00 per order
    Cost of placing orders 10.00 per order
    Cost of capital 25%
    What are the total carrying costs of inventory for an entertainment center?
    a. $105.
    b. $115.
    c. $120.
    d. $420.